MetroPCS 3Q Earnings Down on Smartphone Costs

Shares tumbled 73 cents, or 8.7 percent, to $7.77 in midday trading

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MetroPCS Communications Inc., a provider of low-cost wireless service, reported a 10 percent drop in its third-quarter earnings Tuesday as it spent more to put smartphones in subscriber hands.

Its shares tumbled 73 cents, or 8.7 percent, to $7.77 in midday trading after falling to a 52-week low of $7.58 earlier in the day.

The company said its net income in the July to September period was $69.3 million, or 19 cents per share. That was down from $77.3 million, or 22 cents per share, a year earlier.

Analysts, on average, expected earnings of 24 cents per share, according to FactSet.

Revenue rose 18 percent to $1.21 billion, just below the average analyst forecast of $1.22 billion.

The Dallas-based company spent $343 million on new phones in the quarter, up from $256 million in the same period last year. Meanwhile, revenue from equipment sales was flat. Nearly half of the phones sold were smartphones, which cost more than regular phones. Yet MetroPCS sells some touchscreen Android smartphones for $59 without a contract.

Even with higher smartphone sales, MetroPCS saw an uptick in "churn," or the percentage of customers leaving every month. It went from 3.8 percent a year ago to 4.5 percent.

With subscribers leaving at higher rates, MetroPCS eked out a net gain of 69,384 subscriber in the quarter, the lowest number in two years. It ended the quarter with 9.1 million customers, making it the fifth-largest cellphone company in the U.S.

MetroPCS provides prepaid, flat-rate wireless service plans with no required contract or credit checks. It operates mainly in cities.